In our last post we introduced property tax relief for homeowners in disaster areas who choose to repair or rebuild their properties. Property tax relief is also available, with certain exceptions, to those who prefer to move to a new property.
Moving to a new property
If you prefer to move to another location, under California Revenue and Taxation Code (R&TC) Section 69 you can retain your previous property tax rate and apply it to the purchase of a new home, so long as certain conditions are met:
- The replacement property must be “similar in size, utility, and function” to the previous property.
- The new property must be valued at no more than 120% of the previous one at the time it was destroyed. Any amount exceeding 120% of the market value of the previous property will be added to the adjusted base year value and the total will become the replacement property's new base year value.
If you plan to move to a new property in the same county as your previous one, you have five years from the date of the disaster to purchase or construct the replacement property and to claim this relief.
Relocating to a different county
If you prefer to relocate to another county, under R&TC Section 69.3 you can still take advantage of this tax relief but additional rules apply:
- The destroyed and replacement properties must have been/be your principal residence.
- The replacement must be made within three (instead of five) years of the date of the disaster.
- The full cash value of the replacement property must be equal to or lesser than the original property. The definition of “equal or lesser” varies, depending on how soon you locate your replacement property:
The county in which the new property is located must be among those with an ordinance that accepts such inter-county taxable value transfers.
- If purchased within the first year of the original property damage – 105%
- If purchased in the second year following the original property damage – 110%
- If purchased in the third year following the original property damage – 115%
The following ten counties currently have this type of ordinance, allowing homeowners who have been displaced by a natural disaster to move to another location but still maintain their previous property tax rate: Contra Costa, Los Angeles, Modoc, Orange, San Francisco, Santa Clara, Solano, Sonoma, Sutter, and Ventura. Note that you should always check first with the county in which you are planning to relocate, as these ordinances tend to change.
California tax attorneys
Time is of the essence! To learn more about how you or your business may obtain property tax relief following California wildfire damage, contact the tax attorneys at Moskowitz, LLP today.
Normally, property improvements that require construction, or demolishing a damaged home and rebuilding it, will result in a full reassessment and a higher property tax bill. If, however, your property was substantially damaged by the recent Northern California wildfires and qualifies for disaster relief, you are likely to retain your Proposition 13 protections whether you decide to repair or rebuild.
What is "substantially damaged"?
A property is considered sufficiently damaged to receive a property tax exemption if the loss estimate is at least $10,000. With this level of damage, you should qualify under California Revenue and Taxation Code (R&TC) Section 170 to have your property reassessed to reflect its damaged state and receive a temporary reduction in property taxes and a deferral of your property tax payments.
Renovations and improvements
If you repair or rebuild substantially the same house ("in a like or similar manner"), you pay a lower property tax rate during your reconstruction. After construction is complete, your previous property tax rate will be restored and you will go back to paying the same property taxes as you did before the damage occurred. This benefit applies with few exceptions:
- If only part of your property was damaged or destroyed, your property taxes will be temporarily reduced only for that portion of the property.
- If you improve on the property as part of your rebuild, the assessor will add the full market value of your improvements (i.e., new square footage, additional bathrooms, granny flat, etc.) to your previous base year value.
Owners of manufactured homes on the property tax roll are also entitled to tax relief – if you live in a manufactured home that was totally destroyed in the fires, you may replace it with a comparable unit without having to pay additional property taxes, license and registration fees.
What about my mortgage?
Check with your mortgage lender – some may also be willing to provide you with a 90-day postponement.
These property tax benefits are also available if you choose to relocate to an entirely new property, but restrictions apply as to location. See our next post on taking your property tax rate with you to a new area.